RET cut won’t ease power bill pain: climate adviser

The Federal Government’s independent adviser on climate change found major changes to the 2020 target that created further uncertainty would “seriously risk” undermining investor confidence in renewable energy and the pursuit of lower emissions.
Photo: Nic Walker

by
Marcus Priest

The Climate Change Authority has rejected a push by major energy players to reduce the 20 per cent renewable energy target (RET) and has decided the change would have a modest impact on power bills.

The federal government’s independent adviser on climate change also released forecasts showing the removal of the carbon tax would lead to lower electricity prices by an average of $185 per year but result in higher emissions and new coal power stations.

A discussion paper released on Friday by the authority is a rebuff to energy companies like
Origin
, Energy Australia (formerly TruEnergy) and International Power, which called for the fixed target of 41,000 gigawatt hours of electricity from the large-scale renewable energy target (LRET) to be reduced.

The companies had argued that falling demand for power meant the target would result in renewable energy making up around 27 per cent of energy generated in 2020, rather than the 20 per cent as intended by the policy.

Overall, the authority found the RET would add $65 a year to the average household power bill, and major changes to the 2020 target that created further uncertainty would “seriously risk" undermining investor confidence in renewable energy and the pursuit of lower emissions.

This was particularly the case when the future of the carbon pricing was “politically contested".

It also said cost increases created by the target would be counteracted by the dampening effect it had on wholesale power prices through the introduction of “substantial" volumes of low marginal cost energy.

“The challenge is to strike a reasonable balance between encouraging further investment in renewable energy – leading to ongoing reductions in greenhouse gas emissions – and the costs of the scheme to household and business consumers of electricity," authority chairman
Bernie Fraser
said.

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The authority also proposed leaving the existing “broad structure" of the uncapped small-scale PV component of the scheme unchanged, but it recommended removing the guaranteed price of $40 per certificate – generated from installing home solar panels – through the government clearing house.

But in a bid to reduce the compliance costs associated with the RET for trade-exposed heavy-emitting companies, the authority advocated giving them the opportunity to trade partial exemption certificates provided by government to enable them to receive “market value" for them.

And in the interests of promoting policy stability, the authority recommended that statutory reviews of the overall RET scheme be undertaken every four years, rather than every two.

The authority acknowledged the RET did not deliver the lowest-cost abatement and each tonne of emissions reduced would cost $36 against $23 for the carbon tax.

But in the context of “intense political debate" and general uncertainty about the future of the carbon tax, the RET had a role to play in bolstering incentives for renewable investment, the authority said.

“This high degree of regulatory uncertainty is likely to mean that the effectiveness of the carbon price in driving investments in low emissions technologies generally, including long-lived renewable power stations, is likely to be reduced," it said.

Modelling commissioned by the authority estimated that reducing the LRET target to an “updated" 20 per cent target would save around $4.4 billion in costs to the industry, but these savings – $23 per annum for the average household – would not be large enough to offset the damage to investor confidence that such a change could entail.

“In terms of the impacts on electricity prices paid by energy users, taking into account both the cost of certificates and the decrease in wholesale electricity prices, modelling to date suggests that the difference between the scenarios is likely to be small, and the net present value of the impact on average household bills between now and 2030 would not be significant," the paper said.

Modelling of a “zero carbon price" scenario revealed emissions to 2020 would be 135 million tonnes higher and result in future investment in coal-fired power stations. It would also increase the cost to industry of complying with the RET by $1.4 billion.

A spokesman for Climate Change Minister
Greg Combet
said the government would be conscious of the need to respond promptly to the authority’s final recommendations later this year.